- India aims to set up 140 gigawatts of wind energy by 2030, but offshore wind is unlikely to contribute to this goal due to delays in tendering.
- While India’s first offshore wind tender is set to go live in December 2023, the Ministry of New and Renewable Energy (MNRE) has released a revised strategy paper outlining three different models for development.
- The strategy paper, released in August, has addressed many concerns, but a two-year timeline to conduct studies without financial assistance is too risky for developers to pursue at the moment, experts say.
In a report released last month, the Global Wind Energy Council said India was among the “markets to watch” in the offshore wind energy sector, stating that the country has made “remarkable progress” ahead of the release of its first offshore tender, which is due to come out by December this year.
India aims to set up 140 gigawatts (GW) of wind energy by 2030. So far, India has already achieved an installed capacity of 43 GW of wind energy, all of it onshore.
Offshore wind energy will entail wind farms set up in bodies of water, such as at sea. On August 17, the Ministry of New and Renewable Energy (MNRE) released a revised strategy paper outlining prime offshore wind spots along the country’s coast and offering three different models for development, in an effort to get offshore wind up and running. The process has been long drawn and marred by delays, but developers and experts are hopeful the latest strategy paper will help boost interest and facilitate investments to the sector.
The government intends to award offshore bids worth a capacity of 37 gigawatts (GW) by 2030, an ambitious target given no tenders have yet been released. The first tranche of offshore tenders to survey particular sites are projected to come out by December 1, according to a notification issued by the MNRE, for a capacity of 4 GW along the coast of Tamil Nadu. An additional 3 GW will be awarded in 2024-25.
Inder Bhambra, the country head for business development and sales at Envision Wind Power Technologies said the outlook for offshore wind in India was “decidedly optimistic,” but that much had to be done to support the sector. “The dearth of experience in offshore wind development within India is a prominent challenge. Additionally, the imperative to develop critical infrastructure, including ports and transmission lines, to facilitate the growth of offshore wind projects, cannot be understated,” he said.
The tender for sea-bed leasing for offshore wind projects was supposed to be issued in March this year, based on a 2022 version of the strategy paper, but was delayed because developers wanted more clarity on several issues, including transmission costs and the allocation of renewable sites. While the latest strategy paper addresses some of these concerns, experts and industry insiders say offshore wind development is unlikely to meet government deadlines. India’s offshore sector has no supply chain to speak of, which will also challenge speedy implementation of offshore wind.
Strategy for offshore wind
The 2023 strategy paper proposes three development models for the establishment of offshore wind. In Model A, the MNRE or National Institute for Wind Energy will carry out surveys to set up 0.5 GW of wind each off the coasts of Gujarat and Tamil Nadu. Power procurement under this model is proposed to be arranged by the government and financial assistance will be provided to developers in the form of Viability Gap Funding, a type of grant funding for supporting projects that aren’t yet financially viable, “to achieve a predetermined power tariff.”
In Model B, the zones identified by the NIWE – 13 sites in Tamil Nadu – would be leased out to developers, who are expected to conduct surveys and set up offshore operations without financial assistance. However, the developers gain exclusivity over the seabed during the survey period. In this model, power generated from the plant can be used for captive consumption or sold through bilateral power purchase agreements. The government will provide power evacuation infrastructure, waive transmission charges, and apply other benefits like Renewable Energy Credits and carbon credits to the project. Based on the electricity tariff after two years, the government may also invite bids for procurement by discoms (distribution companies), the strategy paper says.
In the third model or Model C, developers may themselves find a site within India’s exclusive economic zone (EEZ) and carry out studies and surveys. Under this model, the government proposes three types of bidding: on lease or revenue sharing if projects are for captive consumption or third-party sale, competitive tariff-based bidding if the power produced is being procured by distribution companies (discoms) or government, and “any other transparent bidding mechanism identified by the Government.”
The business head of a wind energy developer in the Asia-Pacific region, who did not wish to be named, said Model A appeared to be the most attractive because of visibility on bidding, an assured offtake agreement and the government taking on the burden of carrying out surveys. “Early development may mean issues related to ports, logistics, wind turbine generator availability, and operation and maintenance will have to be analysed properly. Also, given there will be only one winner for both Gujarat and Tamil Nadu, high competition is expected,” they said, adding, “Model B will apply to areas with better wind resource, but it is capital intensive with all studies being carried out by the developer. Three years for construction will be a huge challenge under this model and it needs to be revisited.”
Read more: Miles to sail to harness offshore wind
Challenges with cost and timeline
According to the revised strategy paper released last month, a total of 1 GW will be allocated under Model A, 14 GW under Model B, and 22 GW in Model C. A majority of this capacity is expected to come up with no financial assistance from the government as of now.
“We are very likely to see delays in the implementation of Models B and C,” said Siddharth Jain, founder and CEO of Mec Intelligence, a clean technology consultancy firm. “There are no guarantees from the government for these models and the banking sector is extremely risk averse. All projects work towards financial returns, but this process will take time as everyone, including financers, need to build confidence in the sector. Everything is going to be imported to begin with, so supply chains for components that can’t be easily transported, also have to be figured out.”
A report by Mec Intelligence on offshore supply chains in India said that the country would need original equipment manufacturers (OEMs) to “set up a parallel supply chain to be able to shift nacelle assembly (a tool with all generating components in a wind turbine), alongside an altogether new port side investment that can vary from Rs. 1500 crores to Rs. 3000 crores.” In addition to nacelles, India would also need to start manufacturing towers to hold the offshore turbines (investment of Rs. 250 crores), as well as the foundation that is laid on the seabed (Rs. 300-500 crores).
According to Bhambra, for business to become viable for manufacturers, an annual offtake of 2000 megawatt (MW) per annum is required. “Until we reach such scale in the country, the government needs to offer exemption from customs duty,” he said.
For all these reasons, the cost of producing offshore wind energy is likely to be very high initially. The average Levelized Cost of Energy (LCOE), or the cost of generation over the generator’s lifetime, was projected to be Rs. 10.3 per kilowatt hour (kWh) in 2020, with the cost dropping to Rs. 5.2 per kWh by 2030 without any interventions.
Both governments of Gujarat and Tamil Nadu have agreed to purchase power for Rs. 4 per kWh under Model A, but this may still be too high for developers. “Early indications from India suggest that offshore wind will need to compete at a price as low as 3.5 INR/kWh in order for it to be considered competitive in the Indian power system as of today. Such a low cost of energy will require a significant level of subsidies for the first offshore wind farms,” reads a recommendation from a report by the Centre of Excellence for Offshore Wind and Renewable Energy.
Offshore wind development can’t be rushed, and a two-year period to carry out surveys could be a “non-starter” if strictly enforced, said Ajay Jain, an expert in renewable energy investments and Managing Partner, Indusbridge Capital Advisors.
“Even for onshore wind, at times two years is not sufficient. In the original scheme of things, developers were given five years extendable to two years, then it became three years extendable by two years. Now it’s only two years. One hopes this will be revised before the tender is issued,” he said, adding, “Anybody who has knowledge of offshore wind will understand that it will take at least four to five years, if not more, to complete all the necessary surveys. There’s also no clarity on guidelines for approvals, and this needs to be made clear to the industry.”
According to the business head, the government should also encourage wind OEMs to design turbine generators suitable for Indian conditions, “possibly by some financial incentives; to start with PLI (Production Linked Incentive).”
“While clarity has been given on timelines for 37 GW, it shall be imperative for the government to follow-through to give the industry the required economies of scale,” they added.
Banner image: An offshore wind farm in Europe. Photo from Unsplash.